Nike's earnings tumble 35% Asian lag is blamed

56 cents a share tops estimates for quarter


September 18, 1998|By BLOOMBERG NEWS

BEAVERTON, Ore. -- Nike Inc., the world's top seller of athletic footwear, said yesterday that its first-quarter profit dropped 35 percent, mostly as a result of sluggish sales in Asia, where it will cut 300 positions to reduce costs.

Net income fell to $163.8 million, or 56 cents a diluted share, from $253.1 million, or 85 cents, a year earlier. However, lower costs helped Nike beat the 48-cent forecast of analysts surveyed by First Call Corp.

Consumer spending in Asian countries has withered as some economies fall into recession and currencies slide in value against the dollar.

At the same time, the big shoe-makers such as Nike and Reebok International Ltd. have been hoping for strong clothing sales to make up for weaker sneaker demand. That hasn't happened, as tastes shift from sweat pants to more formal, clean-cut clothes.

"There's not much positive to say about the business," said Margaret Gilliam, president of Gilliam & Co., a consulting business. "I think the U.S. is bottoming out, but Asia is nowhere near bottoming out."

Nike's revenue fell 9.5 percent to $2.50 billion in the quarter that ended Aug. 31, from $2.77 billion. Its U.S. sales fell 13 percent to $917.4 million, continuing a slide that began last year when sales at the footwear maker declined.

Teen-agers in particular have been favoring hiking boots and dressier brown shoes.

Analysts said that before Nike addresses its Asian problems, it has to show improvement in U.S. sales.

"This is the strongest economy in the world," said analyst Lars Bergan at Argus Research Corp. "Any turnaround has to start here."

The company said its first-quarter U.S. footwear inventory was down 35 percent since May 31 and had dropped 29 percent since Aug. 31, 1997.

The shift in fashion last year was compounded when U.S. retailers ordered too many shoes, assuming that sales would exceed those of 1996. That left Nike with a glut of shoes it couldn't sell to retailers, which has led to markdowns and hurt profit in the last year.

Total orders for delivery between now and January totaled $3.2 billion, 15 percent less than in the year-earlier period. Analysts look at orders as an indicator of future sales and profit.

Pub Date: 9/18/98

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